Selamat Hari Raya Aidilfitri

I like to wish all Muslim readers a very happy & joyous Aidilfitri.


(Source: 123Greetings.com)

Market Outlook as at August 26, 2011

For the past few days, I was occupied with clients' orders & studying the results announcements. I was unable to post yesterday but I wish to share my thoughts on the market action yesterday.

One glaring aspect of our market action yesterday was the sharp sell-off in Axiata & CIMB. If you juxtaposed the overall weakness in our market with the rise in the other regional markets, you must be wondering what's wrong with Malaysia. Some would say that we have been downgraded, which is probably true. Then again, I am sure the other regional markets would have experienced similar downgrades. I believe that the strong selling yesterday was due to foreign funds' impatient in selling. You see, our market will be closed for 3 & 1/2 days next week. The trading days would be a half day on Monday (August 29) & a full day on Friday (September 2). The long holidays are for Hari Raya & National Day.

If you have to cut your allocation by a certain amount by a certain date, you would pace your rate of selling accordingly. Imagine, if you were instructed on August 25 to sell 10 million shares of stock X by August 31, you would sell a rate of 2 million shares a day over the next 5 business days (August 25, 26, 29, 20 & 31). Unfortunately for Malaysia, you would not have 5 days to do the selling. You would have 2 & 1/2 days. This means that you would have to clear 4 million shares a day. The increased supply overwhelmed the demand (or, buyers) and this led to the current depressed prices.

You may notice that I am commenting less on the market outlook. In first half 2008, I couldn't help myself & I kept pointing out that the market might recover or reverse after making a top. This time, I would stay with my current take that our market has topped, with some prospect of a bear rally (since the sell-off was very sharp). The readers would have to make up their mind whether they want to trade the bear rally. As you can see from the monthly chart below that the 3 indicators are bearish & the index is breaking the 20-month SMA line. The last time, FBM-KLCI broke the 20-month SMA line was in March 2008. A bear rally ensued shortly thereafter but the market was well on the way to a downtrend.


Chart: FBM-KLCI's monthly chart as at August 26, 2011 (Source: Quickcharts)

MFlour- a disppointing result for QE30/6/2011

Results Update

For QE30/6/2011, MFlour's net profit dropped 49% q-o-q to RM15 million on the back of a 2%-increase to RM466 million. The sharp drop in profitability is due to sharp increase in raw material costs. Compared to same quarter last year, its net profit inched up 2% while turnover jumped 36%.


Table 1: MFlour's last 8 quarterly results



Chart 1: MFlour's 21 quarterly results

Valuation

MFlour (closed at RM7.48 yesterday) is now trading at a PE of 8.2 times (based on last 4 quarters' EPS of 91 sen). However, if raw material costs remained high & MFlour cannot pass on the increased costs to its customers, then the forward EPS should be lowered to 56 sen; thus giving the stock a PE of 13.4 times. At this PE multiple, MFlour is deemed fully valued.

Technical Outlook

From the chart below, we can see that sharp rise in MFlour over the past 6 years, from a low of RM1.50 to its recent high of RM8.50. Except for a short period in 1996, 1998, 1999 & 2011, MFlour normally trades within a big range of RM1.50 & RM4.50. If MFlour's bottom-line were to contract, it is possible that this stock may fall back into that trading range. See my earlier chart.


Chart 2: MFlour's monthly chart as at Aug 1, 2011 (Source: Tradesignum)

From the daily chart below, we can see that MFlour's critical support is at RM7.00-7.09. Investors may hold onto the stock at this level while awaiting the generous capital exercise. If the RM7.00 support level is violated, or if the capital exercise is completed, investors will not hold on to the stock, especially if the results continued to disappoint.


Chart 3: MFlour's daily chart as at Aug 24, 2011_12.30pm (Source: Tradesignum)

Conclusion

Based on the poor results for QE30/6/2011, we should be concerned about the prospect for MFlour. I think you should take some profit on the stock. If it breaks the RM7.00 support, I would downgrade it to a SELL.

Airasia- poorer results, as expected

Results Update

For QE30/6/2011, Airasia's turnover increased by 3% q-o-q or 15% y-o-y to RM1.076 billion while its net profit dropped by 39% q-o-q or 48% y-o-y to RM104 million. Pre-tax profit declined 28.5% q-o-q but rose marginally by 0.6% y-o-y to RM145 million.


Table 1: Airasia's last 8 quarterly results

The drop in net profit on q-o-q basis is attributed to higher fuel costs; a drop in Other Incomes; a drop in Finance Income; and an increase in both Current & Deferred Tax. These exceed the drop in aircraft maintenance & finance cost.

The drop in net profit on y-o-y basis is attributed to increase in fuel costs, staff costs & depreciation charges; a drop in Finance Income; higher current tax; and a deferred tax charge [as compared to a credit in the same quarter last year]. These surpass the drop in aircraft maintenance & a decline in finance costs.


Table 2: Airasia's detailed P&L for q-o-q & y-o-y comparison

A look at Airasia's performance for the past 21-quarter results

Airasia's top-line has grown at a rapid pace for the past 21 quarters. Its bottom-line is generally rising but it dropped sharply in 2008, during the period of Global Financial Crisis. The sign of another sharp decline is now present again as the U.S. economy growth slowed & the European financial turmoil persists. From Chart 2 below, we can see that Airasia's pre-tax & net profit margin are again cutting below their respective 4-quarter MA line. The last time we saw something similar was just before the Global Financial Crisis.


Chart 1: Airasia's last 21 quarterly results



Chart 2: Airasia's profit margin for last 21 quarterly results

Valuation

Airasia (closed at RM3.62 yesterday) is now trading at a PE of 10.8 times (based on last 4 quarters' EPS of 33.4 sen). I would rate Airasia as fairly valued at the current PE multiple, given the uncertainty in the global economic outlook. Its strong growth & solid business model could command a PE of 10 to 15 times, depending market & economic outlook.

Technical Outlook

Airasia is now testing its 50-day SMA line at RM3.57. This & the psychological RM3.50 level will be the critical support level for this stock for the next few weeks. A break below this support could send the stock to the intermediate uptrend line support of RM3.15-3.20. The indicators have weakened, as reflected by the drop in MACD & RSI as well as the the decline in the ADX & the negative crossover of the -DMI & the +DMI.


Chart 3: Airasia's daily chart as at Aug 23, 2011 (Source: Quickcharts)

Conclusion

Based on the challenging business outlook & mildly negative technical outlook, I would rate Airasia a trading SELL if it breaks the RM3.50 support. Despite this rating, Airasia is a good long-term investment stock which deserves close tracking.

QL- past performance may not sustain

Results Update

For QE30/6/2011, QL's net profit dropped by 12% q-o-q to RM28 million on the back of a 10%-decline in turnover to RM455 million. Despite the strong performance from the Oil Palm division, QL's top-line & bottom-line declined q-o-q due to poorer performance from the Marine Products & Integrated Live-stocks divisions.


Table 1: QL's sales & pre-tax profit for QE30/6/2011, q-o-q comparison

When compared to the same quarter last year, QL's net profit increased by 4% while turnover improved by 18%. Again, the contribution came mainly from the Oil Palm division.


Table 2: QL's sales & pre-tax profit for QE30/6/2011, y-o-y comparison



Table 3: QL's last 8 quarterly results



Chart 1: QL's last 13 quarterly results



Chart 2: QL's profit margin for last 13 quarterly results

Valuation

QL (closed at RM2.98 yesterday) is now trading at a a PE of 22.3 times (based on the annualized EPS of 13.36 sen). At that PE multiple, QL is overvalued.

Technical Outlook

QL is looking very toppish. It has broken below its 10-month SMA line at RM3.06. Its MACD is poised to do a negative crossover, which would generate a SELL signal for the stock. If that were to happened, QL could drop further, possibly testing its 20 or even 30-month SMA lines at RM2.55 or RM2.15, respectively.


Chart 3: QL's monthly chart as at Aug 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on high valuation & weakness in its technical outlook, I think one should take profit on this stock, which had risen substantially over the past ten years.

PBA- a cheap defensive stock

Results Update

PBA continued to report good results for QE30/6/2011. Its net profit increased by 10% q-o-q or 110% y-o-y to RM12 million while turnover increased by 15% q-o-q or 29% y-o-y to RM65 million. The improvement in bottom-line was mainly due to "the improved sale of water revenue from trade consumers".


Table: PBA's last 8 quarterly results



Chart 1: PBA's last 25 quarterly results

Valuation

PBA (closed at RM0.90 yesterday) is now trading at a PE of 6.4 times (based on the annualized ESP of 14 sen). That's very attractive for a utility stock.

Technical Outlook

From the chart, we can see that PBA has a strong horizontal support at RM0.80. Its upside is capped by a line that connects the peaks for the past 2 years (at RM1.25-1.30).


Chart 2: PBA's weekly chart as at August 22, 2011 (Source: Quickcharts)

Conclusion

Based on good financial performance & attractive valuation, PBA- a defensive stock- is one stock that you may add to your portfolio in this time of uncertainty.

WTHorse- broke its long-term uptrend line

Results Update

WTHorse has just announced its results for QE30/6/2011. Its net profit increased by 9% q-o-q to RM14 million on the back of a 18%-increase in its turnover to RM140 million. The sharply higher sales was attributed to festive season in 1Q2011. When compared to the same quarter last year, WTHorse' net profit declined by 18% while its turnover was unchanged.


Table: WTHorse's last 8 quarterly results



Chart 1: WTHorse's last 24 quarterly results

From Chart 2 below, we can see that WTHorse's net profit margin failed to rebound, after a drop which coincided with the festive season, for the first time in the past 5 years. This may be nothing or it may be a sign that things are going to get worse from hereon. We must track this stock closely.


Chart 2: WTHorse's profit margin for the last 24 quarterly results

Financial Position

As at 30/6/2011, WTHorse's financial position is deemed satisfactory, with current ratio at 2.3 times and debts to equity ratio at only 0.1 time.

Valuation

WTHorse (closed at RM1.75 last Friday) is now trading at a PE of 6 times (based on last 4 quarters' EPS of 28.93 sen). Based on current market condition, WTHorse is deemed fairly valued.

Technical Outlook

WTHorse broke its uptrend line (using the 10-month SMA line) at RM1.92. All indicators have turned down, which would signal the start of a bear phase for the stock.


Chart 3: WTHorse's monthly chart as at August 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

The fundamental of WTHorse remained relatively unchanged. It has satisfactory financial performance & position. However the technical outlook has changed & given the current market condition, I would rate WTHorse a SELL or REDUCE.

AHealth- time to take profit

Results Update

AHealth has just announced its results for QE30/6/2011 where its net profit dropped 26% q-o-q to RM6.6 million on the back of a 4%-decline in turnover to RM89 million. The decline was attributed to the normalization of an exceptional strong 1Q2011. As compared to the same quarter last year, AHealth's net profit increased by 13% while turnover grew by 15%.


Table: AHealth's last 8 quarterly results



Chart 1: AHealth's last 13 quarterly results

Financial Position

As at 30/6/2011, AHealth's financial position is deemed satisfactory, with current ratio at 2.3 times and debts to equity ratio at a negligible 0.04 time.

Valuation

AHealth (closed at RM2.92 last Friday) is now trading at a PE of 9.4 times (based on last 4 quarters' EPS of 31 sen*). At this PE multiple, AHealth is deemed fairly valued under the present poor market sentiment.

(*Note: The last 4 quarters' EPS is about 38.3 sen. However, this includes 7 sen of exceptional gain in QE31/12/2010. To compute our PE multiple, we have to exclude this exceptional gain & adjust the EPS to 31 sen.)

Technical Outlook

AHealth's share price performance has been spectacular for the past 3 years. Its strong support is at the horizontal line RM2.80 which coincides with the 10-month SMA line at RM2.85. If that support is violated, the share may drop to the next horizontal support at RM2.60 & then at RM2.40.


Chart 2: AHealth's monthly chart as at August 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on good financial performance & financial position, AHealth is a good stock for long-term investment. However, due to the poor market sentiment, we should consider taking some profit in this investment.

KPJ- top-line & bottom-line continued to grow

Results Update

KPJ has just announced its results for QE30/6/2011 where its net profit increased by 10% q-o-q or 3% y-o-y to RM30 million while its turnover increased by 8% q-o-q or 15% y-o-y to RM471 million. The improvement is due to increased revenue & contribution from its hospitals. From Chart 2 below, we can see that its profit margin has declined in the past 2 quarters, probably due to competition in the healthcare sector where increased costs were not fully passed on to the consumers.


Table: KPJ's last 8 quarterly results



Chart 1: KPJ's last 18 quarterly results



Chart 2: KPJ's profit margin over the last 18 quarterly results

Financial Position

As at 30/6/2011, KPJ's financial position is deemed satisfactory with current ratio at 1.3 times and debts to equity ratio at 0.5 time.

Valuation

KPJ (closed at RM4.57 last Friday) is trading at a PE of 21 times (based on last 4 quarters' EPS of 22 sen). At that PE multiple, KPJ is deemed fully valued. However, KPJ's high PE multiple reflect the valuation of this sector. For example, Khazanah acquired Parkway at a PE of 39 times (here).

Technical Outlook

From the chart below, we can see that KPJ is trading at the crest of a giant wave. If market sentiment turned bearish (and it appears to be doing exactly that presently), KPJ could pull back sharply. It may drop back to the trough of that wave at RM1.80-2.00.


Chart 3: KPJ's monthly chart as at August 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on good financial performance & financial position, KPJ is a good stock for long-term investment. However, given the curretn poor market sentiment & the stock's high valuation, I think it is prudent to take some profit on this stock.

Tongher- top-line & bottom-line improved

Results Update

Tongher has just its results for QE30/6/2011 where its net profit increased by 13% q-o-q or 80% y-o-y to RM14.7 million while its turnover increased by 15.5% q-o-q or 161% y-o-y to RM166 million. The overall improvement was attributed to higher sales of stainless steel fasteners. Recently, there was a report that 8 Malaysian companies were exempted from anti-dumping duties of 85% imposed the European Union. The duties affect mostly China-made fasteners. Tongher is likely to be one of those companies exempted from the duties. If so, it should continue to enjoy good demand for its products. For more, go here.


Table: Tongher's last 8 quarterly results



Chart 1: Tongher's last 27 quarterly results

Financial Position

Tongher's financial position as at 30/6/2011 is deemed healthy with current ratio at 2.3 times and debts to equity at 0.4 time.

Valuation

Tongher (closed at RM1.93 last Friday) is now trading at a PE of 6.2 times (based on last 4 quarters' EPS of 31.23 sen). Given the current market sentiment, this PE multiple is deemed fair.

Technical Outlook

Since the high of RM2.80 in early January 2011, Tongher has been sliding. In the past few days, it struggled to hold onto the psychological RM2.00 support, without success. It may find support at the upper boundary of the previous triangle at RM1.80.


Chart 2: Tongher's weekly chart as at August 19, 2011 (Source: Quickcharts)

Conclusion

Based on good financial performance & fair valuation, I would rate Tongher a HOLD despite the negative technical outlook.

LTAT to offer RM5.20 for ESSO?

The Berita Harian reported today that "the LTAT was still keen on acquiring the Esso stake and it could offer as much as RM5.20 per share". For more, go here. This report was also picked up by the Edge (here).

People shouldn't believe what they read or heard without asking themselves logical questions, like "Why ExxonMobil did not accept a better offer from LTAT?" or "Why LTAT didn't offer a higher price earlier?". Obviously, there was no such offer on the table. The unsuccessfully bidder must have offered a lower price which was rejected.

The next thing this bidder would bring out is national interest. Yes, they will say that the retail chain of petroleum products is a critical plus subsidized business and it should be owned by Malaysians. Then you should ask yourself another question, "Why would ExxonMobil sell these businesses to foreigner when there is an Malaysian party interested to buy over the businesses?". ExxonMobil's crude oil exploration & production business in Malaysia makes huge profit annually and they would not want to jeopardize that business by offending an important GLC entity, like LTAT.

Based on this analysis, I believe that the content of the report is not true. LTAT is trying to protect itself from criticism from certain nationalist or chauvinistic parties for its failure to buy over the ESSO retail chain. If it managed to do so, it could double or triple its presence in the local petroleum retail business overnight. Its related company, BHP bought over BP retail chain a few years back & renamed it BHP.

Meanwhile, I am aware that some people, owning ESSO shares, are hoping that another party would come in and offer a higher price. Sometime, when players are caught with a losing position, they would grasp onto anything that gives them hope of salvation. If you have to pray for a miracle to save your trading position, chances are that miracle will not happen. The best course of action is to face reality and take the best price offered by the market.

Update: Just what we need, another hero to the rescue.

DLady- still an attractive consumer stock

Results Update

For QE30/6/2011, DLady's net profit dropped 2% q-o-q to RM27.8 million on the back of a 2%-increase in turnover. When compared to the same quarter last year, its net profit increased by 47% while turnover increased by 8%. Its y-o-y improvement in turnover was due to higher demand for liquid milk, while pre-tax profit increased due to higher sales & favorable sales mix.


Table: DLady's last 8 quarterly results



Chart 1: DLady's last 13 quarterly results

Valuation

DLady (closed at RM18.24 yesterday) is now trading at a PE of 14.6 times (based on last 4 quarters' EPS of 125 sen). I believe DLady can command a PE multiple of 17-18 times. At 17 times, DLady is valued at RM21.25.

Technical Outlook

DLady seems to be trapped within a giant rising wedge formation, with support at RM13.00 & resistance at RM25.00. However, DLady's immediate resistance is the horizontal line of RM20.00, which is its all-time high price.


Chart 2: DLady monthly chart as at August 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on good financial performance, possible room for higher valuation & still positive technical outlook, I would rate DLady a HOLD.

KFima- top-line & bottom-line lifted by strong plantation division

Results Update

For QE30/6/2011, KFima's net profit increased by 30% q-o-q or 40% y-o-y to RM24 million while its turnover increased by 25% q-o-q or 15% y-o-y to RM128 million. The improvement was attributed to better performance from the plantation division.


Table: KFima's last 8 quarterly results



Chart 1: KFima's last 24quarterly results

Valuation

KFima (closed at RM1.68 yesterday) is now trading at a PE of 5.4 times (based on te last 4 quarters' EPS of 31 sen). This is an undemanding PE multiple. Like TWSPlnt, the question to ask is whether KFima can maintain its earning at this level. The market is apparently reluctant to price the stock higher than this PE multiple, possibly fearing a drop in CPO prices which may pull down KFima's earning.

Technical Outlook

From the daily chart (Chart 2), we can see that KFima is trading within a range between Rm1.50 & RM1.95. A breakout of this range will point the way forward for the stock. From the monthly chart (Chart 3), we can see that KFima;s immediate resistance is at RM2.00 & then at RM2.20. Its immeidate support is at the 10-week SMA line at RM1.62. A break below RM1.62 could signal the end of its 2 & 1/2 years' uptrend line.


Chart 2: KFima's daily chart as at August 18, 2011 (Source: Tradesignum)



Chart 3: KFimas monthly chart as at August 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on good financial performance, attractive valuation and still positive technical outlook, I would rate KFima a HOLD. However, its share price & financial performance is dependent on the performance of CPO prices. As such, it is important that we keep ourselves abreast with the movement of CPO prices.

Nestle- top-line & bottom-line slideback after a strong 1Q

Results Update

for QE30/6/2011, Nestle's net profit dropped 30% q-o-q to RM107 million on the back of a 2.5%-decline in turnover to RM1.156 billion. The drop in turnover is attributed to higher sales in the immediately preceding quarter (QE31/3/2011) which include the important lunar year. This coupled with higher raw material costs and strong marketing and promotional activities incurred for the launch of a few products, led to a drop in its net profit.

Compared to the same quarter last year, Nestle's net profit increased by 6% while turnover incresed by 10%.


Table: Nestle's last 8 quarterly results



Chart 1: Nestle's last 17 quarterly results

Valuation

Nestle (closed at RM47.90 yesterday) is now trading at a PE of 27 times (Based on lats 4 quarters' EPS of 176 sen). At this multiple, Nestle is deemed overvalued.

(Note: Nestle Malaysia has outperformed its parent Nestle SA. In July 2009, I posted a piece on Nestle, recommending a switch from Nestle Malaysia to Nestle SA. (here). The latter rose from CHF40 to a high of CHF56 and it has since eased off to about CHF49. That represents a gain of 22.5% while Nestle Malaysia rose from RM32 in July to RM47.90 yesterday- a gain of 50%.)

Technical Outlook

Nestle has been rising within an upward channel, with the resistance posed by the parallel line at RM50.00. It may find support at the 10-week SMA line at RM46.00.


Chart 2: Nestle's monthly chart as at August 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on high PE multiple & limited technical upside, I believe one should take profit on Nestle.

TWSPlnt- top-line & bottom-line soared

Background

TWS Plantation Bhd ('TWSPlnt') is involved mainly in the cultivation of oil palm, owning estates measuring 127,000 hectares in Peninsular Malaysia and Sabah & Sarawak.

Recent Financial Results

Fr QE30/6/2011, its net profit increased by 85% q-o-q or 224% y-o-y to RM90.1 million while its turnover increased by 46% q-o-q or 74% y-o-y to RM336 million. The increased top-line & bottom-line is attributed to higher production of FFB.


Table: TWSPlnt's last 8 quarterly results



Chart 1: TWSPlnt's last 13 quarterly results

Financial Position

TWSPlnt's financial position as at 30/6/2011 is mixed, with current ratio at 0.43 time while debts to equity ratio is at 0.43 time. The lower current ratio is due to high short-term borrowings taken to finance its estate development. This mismatch of asset & liability maturity profile could be a problem in the event of a credit crunch where the bankers may withdraw their line of credit. TWSPlnt is better served by replacing these short-term borrowings with term loans or loan stocks with longer tenor.

Valuation

TWSPlnt (closed at RM3.49 yesterday) is now trading at a PE of 8 times (based on last 4 quarters' EPS of 43 sen). Is TWSPlnt currently at or near the peak of its earning cycle? That depends on the outlook for CPO. At the moment, CPO is still in a medium-term downtrend line, with resistance at RM3300. Its immediate support is at the horizontal line at RM3100 & then at the psychological RM3000 level. Thereafter, CPO may find support at the horizontal line at RM2700 (which may be its long-term uptrend line).


Chart 2: CPO's weekly chart from August 18, 2011 (source: ifs.marketcenter.com)

Technical Outlook

TWSPlnt has broken below its 20-week SMA line. If it break below its 40-week SMA line at RM3.31, TWSPlnt's uptrend for the past 1 year could be over. Even at the present moment, TWSPlnt looks very toppish.


Chart 3: TWSPlnt's weekly chart as at August 15, 2011 (Source: Tradesignum)

Conclusion

Based on its recent financial performance & valuation, TWSPlnt looks like a good stock for long-term investment. However, the concern about the sustainability of its earning & the poor technical outlook should cause one to think twice before getting into this stock now. Nevertheless, it is definitely worth close tracking, but it could be a good long-term buy if it dropped to the level of RM2.00-2.50.

BRDB- when you got to go, you got to go!

On a day when most stocks are on the losers column, one stock sticks out like a sore thumb- BRDB. The stock tested its long-term uptrend line at RM1.88-1.90 only last week. Since then, it has gained about 30% on relatively thin volume of 3000-7000 lots per day (except for yesterday when the volume jumped to 15000 lots). As at 12.00 noon, it is trading at RM2.43- a gain of 10 sen- on volume of 7000 lots. Its warrant, BRDB-WA also gained 10 sen to RM1.43. The way BRDB is moving, regardless on the market condition, could only mean that there is something positive is about to be announced.

Chartwise, BRDB's immediate resistance is the horizontal line at RM2.45 and its immediate support is the horizontal line at RM2.25. If it can break above the RM2.45 level, its next resistance is the horizontal line at RM3.00.


Chart 1: BRDB's weekly chart as at Aug 19, 2011_11.50am (Source: Quickcharts)



Chart 2: BRDB-wa's weekly chart as at Aug 19, 2011_11.50am (Source: Quickcharts)

Given the overall poor market condition, you are advised not to take unnecessary risk. That may include trying to trade this particular breakout.